Annual0B Review 1395 (2016/17) CENTRAL BANK OF THE ISLAMIC REPUBLIC OF IRAN (BANK MARKAZI JOMHOURI ISLAMI IRAN) Annual Review 1395 (2016/17) CENTRAL BANK OF THE ISLAMIC REPUBLIC OF IRAN (BANK MARKAZI JOMHOURI ISLAMI IRAN) CONTENTS ABBREVIATIONS iv SYMBOLS iv LIST OF FIGURES v PART ONE (Economic Developments of Iran in 2016/17) Introduction 1 National Product and Expenditure 3 Real Sector Developments 3 Energy 3 Agriculture 5 Manufacturing and Mining 10 Construction and Housing 13 Transportation 16 Population and Employment 18 Fiscal Sector Developments 20 Government Budget and Finance 20 External Sector Developments 22 Foreign Trade 22 Balance of Payments 24 Financial Sector Developments 25 Money and Banking 25 Payment Systems 27 Asset Market Developments 32 Price Trends 37 Household Welfare and Expenditure 39 PART TWO (Statistical Appendix) List of Tables 44 iii ABBREVIATIONS ATM Automated Teller Machine CBI Central Bank of the Islamic Republic of Iran CPI Consumer Price Index FYDP Five-Year Development Plan GDP Gross Domestic Product JCPOA Joint Comprehensive Plan of Action kWh Kilowatt-hour mb/d Million Barrels per Day NDF National Development Fund NIGC National Iranian Gas Company NIOC National Iranian Oil Company NIORDC National Iranian Oil Refining and Distribution Company OPEC Organization of the Petroleum Exporting Countries OSF Oil Stabilization Fund POS Point of Sale PPI Producer Price Index Rls. Rials SCI Statistical Center of Iran SME Small and Medium-sized Enterprises TEPIX Tehran Stock Exchange Price Index TSE Tehran Stock Exchange SYMBOLS __ Negligible fraction. .. Figures not available. The figure is not a significant decimal fraction. Figures are preliminary. ▲ Figures are revised. Calculation (of percentage change) is not possible. More than 500 percent increase. The year 1395 corresponds to 2016/17 (starting March 20, 2016 and ending March 20, 2017). In all tables, components may not sum to total because of rounding. "Billion" means a thousand million; "trillion" means a thousand billion. iv List of Figures Page Figure 1. Economic sectors' contribution to GDP growth 3 Figure 2. Average spot prices of crude oil during 2016 4 Figure 3. OPEC members' quotas in 2016 4 Figure 4. Trade balance of agriculture sector 9 Figure 5. Performance of petrochemical industry 11 Figure 6. Residential units constructed by private sector in urban areas 14 Figure 7. Growth in number of carried passengers 17 Figure 8. Growth in volume of carried goods 17 Figure 9. Unemployment rate 19 Figure 10. Government budget 22 Figure 11. Major economic variables 26 Figure 12. Changes in stock exchange indices 32 Figure 13. Developments of US dollar in the official market 35 Figure 14. Developments of euro in the official market 36 Figure 15. Growth in price indices (2011/12=100) 38 v Part One Economic Developments of Iran in 2016/17 In the Name of God, The Compassionate, The Merciful Central Bank of the Islamic Republic of Iran of foreign exchange transactions. With the appropriate monetary discipline, proper liquidity management, and substantial improvements in inflation expectations, inflation was contained in 2016/17. The very high growth performance of the Iranian economy, combined with a single-digit inflation rate of 9.0 percent which was experienced after 26 years of double-digit inflation, is highly noteworthy and in that sense, the year 2016/17 is perceived to be a turning point in the Iranian economy. The government support for production under the guidelines and the framework for attaining the targets of the resistance economy was implemented with a focus on the conduct Introduction of financial resources and provision of facilities After the agreement on the relief of nuclear- for the working capital of productive sectors, related sanctions in 1394 (2015/16), Iran with major emphasis on SMEs and the provision practically entered the implementation period of of Gharz-al-hasaneh facilities for youth marriage. the JCPOA in 1395 (2016/17). Immediately Moreover, substantial attempts were directed after the implementation of the JCPOA and the towards establishing and expanding correspondent relief of sanctions, in particular those related to banking relationships with large international oil exports, Iran bounced back in oil production banks after the sanctions relief, improvements and exports and played an effective role in the and stability in the foreign exchange market, international oil market. In 2016/17, the economic and the restructuring of unauthorized credit growth performance was strongly driven by a institutions under the framework approved by sharp increase in oil income which led to the the Supreme National Security Council. Major GDP growth of 12.5 percent compared to a policy measures were adopted to make use of negative outturn of 1.6 percent in the year unutilized domestic production capacities and before, at constant 2011/12 prices. The very customize modern technological advancements exemplary growth of oil GDP had notable in the banking system to help attain targets set spillover effects into the non-oil sectors of the under the resistance economy framework. The economy (agriculture, services, and industry). implementation of these policies enabled Iran's Despite lower global oil prices, Iran's ability to economy to generate a high growth rate, cut down sharply increase oil production and exports and inflation to single digits, stabilize the foreign the ensuing increase in oil export earnings, led exchange market, lower moderately banks' profit to more durable stability in the foreign exchange rates, and improve main macroeconomic variables market and a more appropriate management in 2016/17. 1 Annual Review 2016/17 Initial data for 2016/17 suggest that GDP fiscal discipline, containment of inflation growth rate increased by 12.5 percent (at constant expectations, and lower international commodity prices of 2011/12). Total GDP had contracted by prices contributed to a sharp decline of inflation 1.6 percent in 2015/16. The growth performance of in 2016/17. 2016/17 suggests that total GDP has continually increased in each quarter after 2015/16. The Regarding the external payment position, the major contribution to GDP growth was related surplus of current account surged remarkably to the oil sector with 9.8 percentage points of the in 2016/17 compared with the previous year total GDP growth. "Services" and "manufacturing and reached $16.4 billion. Meanwhile, goods and mining" sectors have not appeared so strongly, account surplus experienced 289.3 percent each contributing by 1.9 and 0.6 percentage increase and oil export earnings increased by points, respectively, to the total GDP growth of 75.1 percent. The surplus in income and current 12.5 percent at base year constant prices. Initial transfers accounts picked up in 2016/17 while estimates also indicate that gross fixed capital the deficit of services account widened as well. formation contracted by 3.7 percent at base year 2011/12 constant prices. This performance In 2016/17, the new job opportunities created suggests that the overall contraction of gross in the economy were approximately 616 thousand. fixed capital formation in 2016/17 was much However, due to the increase in the participation lower than the 12.0 percent decline of this rate and owing to the labor supply increase, the variable in 2015/16. unemployment rate continued a rising trend and reached 12.4 percent, 1.4 percentage points As a result of the implementation of the higher than 2015/16. High expectations with Targeted Subsidy Plan, an expansionary monetary regard to the JCPOA contributed to the inflow policy, and the rise in the exchange rate after of encouraged workers which led to the higher the imposition of sanctions, inflation rate started potentially active population and hence a higher to surge in month Azar 1389 (December 2010) participation rate by 1.2 percentage points to and gradually reached the maximum level of reach 39.4 percent of total labor force. Increase 40.4 percent in month Mehr 1392 (October 2013). in young university graduates with a higher However, immediately after the commencement participation rate had a major effect on the rise of the 11th government, inflationary pressures of the total participation rate in 2016/17. started to subside as of Aban 1392 (November 2013) and declined to 34.7 percent at year-end All in all, given the high absorption capacity (March 2014). The downturn of inflationary and potentials of the Iranian economy, sanctions pressures continued in subsequent years until relief, institutional and structural reform plans, the end of 1395 (March 2017) when inflation and the reintegration of the Iranian economy declined to a record low of 9.0 percent, the into the world economy, there is a great positive lowest in 26 years. The stability in the foreign outlook for higher growth and development in exchange market, strengthened monetary and Iran. 2 Central Bank of the Islamic Republic of Iran National Product and Expenditure Figure 1. Economic sectors' contribution to GDP growth Based on preliminary estimates, gross domestic (percentage point) product at both basic and current prices services manufacturing and mining increased from Rls. 11,129 trillion in 2015/16 oil agriculture to Rls. 12,723 trillion in 2016/17, indicating 15 14.3 percent nominal growth. Considering the 10 changes in the general price level, preliminary 5 data on real sector of the economy point to 12.5 0 percent increase in GDP at constant 2011/12 prices against -1.6 percent growth in 2015/16. -5 This indicates remarkable GDP growth in -10 2012/13 2013/14 2014/15 2015/16 2016/17 2016/17 compared with 2015/16 at constant prices. According to preliminary estimates for the According to preliminary estimates, in foreign trade sector, the exports and imports of 2016/17, "oil", "services", and "manufacturing goods and services recorded respectively 41.3 and mining" groups, with growth contributions of and 6.1 percent growth in 2016/17.